If your electric company hasn't merged with one of its peers
lately, just wait - it probably will.

Driven by forces unleashed by deregulation, mergers and
acquisitions are spreading like wildfire.

Several deals were announced Monday, and already this year, more
than $20 billion worth of power-company mergers have been
announced, according to Securities Data Company in Newark, N.J.

Analysts say the moves will lead to lower costs for consumers,
uncertainty for investors, and chaos in an an industry that, since
it was heavily regulated in the 1930s, has been characterized by
stability, even stodginess. The result may be bigger companies
offering new types of service - you may buy electric power, gas
heat, and even phone service or a home-security service from the
same firm.

The mergers so far represent just the "tip of the iceberg," says
Henry Lee, a lecturer at Harvard University's Kennedy School of
Government in Cambridge, Mass. Utility mergers will continue for
several more years, predicts Mr. Lee, who also works as a
consultant to several utilities.

Lee sees the electric industry segmenting into three parts:
generation, transmission, and distribution. One set of companies
will generate power, another group will transmit it over
high-voltage cables, and the third will distribute it to local
customers.

That process still has a long way to go.

So far, many of the deals are motivated by a fairly simple
issue: costs.

"Mostly it's just to combine facilities, get bigger exposure,
and less costs," says Maureen Carini, an analyst at Standard &
Poor's Corp. in New York.

By merging, utilities can cut overhead costs to fend off
low-price competition in a deregulated market. Most at risk in the
new landscape are high-cost utilities, including some heavily
reliant on nuclear plants, while the hottest competitors rely on
low-cost natural gas.

The latest trend seems to be combinations between natural-gas
and electricity vendors.

In one of Monday's deals, Houston Industries Inc., the nation's
ninth-largest electric utility, said it would buy NorAm Energy
Corp., America's third largest natural gas utility, for $3.8
billion.

Meanwhile, gas giants Enron Corp. and Texas Utilities, are also
in the midst of megamergers. Houston-based Enron, which has
diversified into the power generation business, said it would
acquire Portland General Corp., an electric utility, for $2.1
billion in stock. In April, Dallas-based Texas Utilities, the
nation's fourth-largest electric utility, said it would buy Enserch
Corp., the largest gas-distribution company in Texas, for $1.7
billion.

Gas companies have the marketing skills needed in a deregulated
environment, says Robert LaFortune, who sits on the board of
Williams Companies, a Tulsa gas-pipeline company. Williams itself
is rumored to be in merger talks with Cinergy, a Cincinnati
electric utility.

Ever since natural-gas transportation was deregulated, companies
like Williams have been forced to develop sales and marketing
strategies to keep their customers. "Similar kinds of marketing
opportunities are taking shape," in electricity, Mr. LaFortune
says, "So it's natural for companies who have developed an
expertise in petroleum and natural-gas marketing to look at
marketing opportunities in another industry. …

The rest of this article is only available to active members of Questia

Print this page

While we understand printed pages are helpful to our users, this limitation is necessary
to help protect our publishers' copyrighted material and prevent its unlawful distribution.
We are sorry for any inconvenience.